Liquidation – Some Practical Tips

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This is not a guide to liquidation, but a look at some of the important issues that arise during the process that you might need to consider…

There are a few guides available that will explain the different types of liquidation along with the liquidation process – indeed on our Business Shut Down page, I explain the liquidation process and options at some length.  The purpose of this blog is not to repeat that information, but to give some practical advice and tips for you to consider alongside the insolvent company liquidation process (also known as Creditors Voluntary Liquidation and CVL).

 

Is Liquidation the end for my business, or can I start again?

 

Having decided that the company cannot continue in its current form, your next most important decision is whether the business should just shut down and disappear completely, or whether you should start again? The legal framework for business enterprise within England & Wales is highly entrepreneurial in spirit, so bar some very important caveats which I’ll explain later, it is not only legal but in many instances preferable for owner/managers of companies entering liquidation to set up another company.

 

When deciding whether to transfer the assets to a new company, as a minimum you should consider:

 

1. The ability of the business to trade profitably. You are placing the current company into liquidation, so it is only right that you properly consider whether this new business has a fair chance of success moving forward. I would suggest preparing cashflow and profit & loss forecasts and discussing these with your accountants.

2.  The cost to the new company of buying back the assets of the liquidated company. This should be discussed in advance of liquidating the company, so you have a clear idea of whether it is affordable. As liquidators, we are generally amenable to allowing payment to be stretched over a period of time to make it more affordable, as long as fair value is offered for the assets.

 

What else should I consider?

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Once you have made your decision as to whether you are using the liquidation process to shut down completely, or whether you intend to transfer the business to a new company, below are other important considerations to take into account.

 

Personal Guarantees in Liquidation

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If you have given personal guarantees (“PGs”) to either a bank or trade creditor, these will become payable once the company enters liquidation. Separately from the liquidation you will need to reach agreement as how to deal with these.

 

There are various firms such as ours that can negotiate a reduction on your personal guarantee on your behalf. Please read this blog for more details on Personal Guarantees.

 

Bank Accounts in Liquidation

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Once you start the liquidation process, your company bank accounts will be frozen and become the property of the liquidator. If you have set up a new company, you will need to ensure that you also have a new bank account. As your previous company has entered liquidation, it can be difficult to get new banking facilities, but we are happy to point you in the right direction of banks that will assist.

 

Property Leases in Liquidation

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When the company enters liquidation, the liquidator can either  ‘disclaim’ the property lease, which basically means giving it up, or transfer it to a new company. You will need to consider whether you intend trading on from your existing premises, and if necessary, negotiate with the landlord in advance of liquidation for a new lease. The liquidator should be able to assist with this process.

If you have given a personal guarantee, please see the comments above.

 

Antecedent actions from the liquidator

 

This is potentially a tricky one. If your actions as director of a company that has been liquidated warrant it, the liquidator can take action against you and other directors personally for the recovery of certain funds – see my article on Potential Problems for Directors for further information.

 

To avoid being in a position where this could occur, I strongly recommend talking to a firm like Liquidation Experts to have the company’s finances reviewed prior to placing it into liquidation. If there is a potential problem, you need to understand the ramification of it prior to entering liquidation.

 

Effect of liquidation on Employees

 

Whether you intend to set up a new business post-liquidation, or just shut down your company, if you have employees, these individuals will need to be sensitively and professionally spoken with.

 

Liquidation Experts can assist in the redundancy process and meet with your staff to explain the procedures. Depending on certain timings, it is likely that your staff will be entitled to make a claim against the Insolvent Estate for parts of their unpaid wages, redundancy, pay in lieu of notice and holiday pay. The statutory rates are accessible here. – Employees in Liquidation matters

 

Director Liquidation Redundancy claims

 

By placing your company into liquidation, as a Director you may also be entitled to the make a claim against the National Insurance Fund using the same calculations as your employees.

This can be particularly useful as extra funds to get you back on your feet again at a time you need it most. In our experience, directors have used these funds to offer one-off settlements against Personal Guarantees; Pay the liquidation fee; Settle personal debts, and as working capital for their new business moving forward.

 

Re-use of liquidated company’s name (or similar)

 

After liquidation, note that it is an offence for a Director to set up a company with the same or a similar name as the liquidated company, unless a strict process is followed. It’s all too common to see Directors fall foul of this, when a bit of careful of planning could allow the re-use of a similar name to the liquidated company without any legal ramifications.

If you commit this offence, you could be held personally liable for all of your new company’s debts should it then enter liquidation. You are also considerably more likely to be on the receiving end of Disqualification Proceedings and a fine from the Insolvency Service.

The Insolvency Rules do allow exceptions to the re-use of a liquidated name. So if it is your intention for the new company to have a similar name, make sure you discuss this with the liquidator, and he will be able to work with you to ensure that the exceptions have been properly applied.

 

Purchase of liquidated assets

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Once you have decided that you want to have another try at business, it’s likely that you will want to purchase the assets of your old company back from the liquidator. The liquidator will need to ensure that any asset sale is at fair value, so it’s important that you start negotiating with him as soon as possible in the process.

If you are unable to pay for the assets in full on completion, it may be possible to spread the cost over a period of months, though it’s likely that the liquidator will need to take a personal guarantee for security.

With regard to the liquidated company’s debtor book, the liquidator will realize these for the benefit of the liquidation creditors. In some circumstances, it may make sense for you to assist the liquidator in the collection of these, and payment for acting as agent can be agreed in these circumstances.

 

How Liquidation Experts can help

 

Christopher Roos is both a business turnaround specialist and an Insolvency Practice.

 

As turnaround specialists, we can lease with you and your accountants providing assistance in preparing a business plan for moving a new company forward.

 

We also take appointments as liquidators of companies, and prior to undertaking formal liquidation, will meet with you to discuss any of the above or other concerns.

 

If post liquidation action has been taken against you, for matters such as preferences or overdrawn loan accounts, we can help defend these actions

Regardless of whether a company liquidation is the end of that business or a new beginning, you will need to appoint a licensed insolvency practitioner to act as liquidator. When looking to appoint a liquidator, make sure that they are not only advising you on the liquidation, but providing assistance with all of the other very important considerations.

 

Feel free to mail me directly at info@liquidationexperts.co.za or phone me at 082 304 7925